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Why Western Digital Will Keep Flying in 2014

By Brian Pacampara – Jan 16, 2014 at 11:40AM

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Does this analyst make a good case? Or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Western Digital (WDC 1.96%) gained about 1% this morning after Bank of America upgraded the hard drive technologist from neutral to buy.

So what: Along with the upgrade, analyst Scott Craig boosted his price target to $102 (from $87), representing about 15% worth of upside to yesterday's close. While contrarians might be turned off by Western Digital's hot stock price over the past year, Craig believes there's more room to run given his view of continued improvement of the company's fundamentals.

Now what: According to Bank of America, strengthening information technology demand should drive revenue, margin, and earnings-per-share upside for Western Digital. "While PC demand remains challenged, declines are moderating and December quarter industry TAM should surprise at low 140mn's versus prior guidance of 139mn," Craig noted. "Commentary from hardware OEMs/distributors such as HP, Synnex etc. has pointed to a modestly improved IT demand environment." With the stock now up 100% over its 52-week lows and trading at a 20-plus P/E, however, holding out for a wider margin of safety seems like the prudent move to this Fool.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool owns shares of Western Digital.. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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